He tells the story of how he was out of cash, stressed out, nobody in LA or Silicon Valley would give him money, he had finally found an investor in Minneapolis but his venture bank was going to shut him down for breaking a “covenant” in their agreement by not having enough cash in the bank. A friend helped him get out of this situation and changed Matt’s life forever. The answer? Given the bank more “warrant coverage.”

Something so simple. Get connected to the right mentors and your business may catapult to the next level. Don’t and you might make one catastrophic mistake that leaves you in the annals of Effed Companies. Matt was one of my inspirations behind Launchpad LA (yes, we’re going to have a program in 2011 – news very, very soon). I figured if Matt was on the verge of bankruptcy and one mentor changed his trajectory, what if we had a formalized, community-wide program?

Since selling Matt has gone on to become one of the smartest angels I have seen operate. He is very hands-on and helpful – especially for any company looking into customer acquisition. What better than to have capital from somebody who has actually done it in the trenches? Matt’s commitment to re-investing in tech startups is reminiscent to this great Fred Wilson post of “recycling capital.“

– Getting started:
o Matt founded LowerMyBills.com in Dec 99, exited to Experian in Jan 05 for $400M.
o The idea: In 99 wife and he bought a house in LA and when he received first mortgage bill and then cell phone bill for $1,300 (lots of roaming fees back then) he tried to find a one-stop-shop to lower his expenses but could not find anything. He typed lowermybills.com was not registered and available so he bought it. Consumers responded to name and concept well, solves real problem,
o Took 4 months to build initial prototype.

– Business model:
o They bought a lot of ad inventory (banner ads/advertising) driving people to signup forms, converting (fill out form) and sold leads,
o Initial strategy was first comparison shopping and then monitoring and upselling on more savings. They were actually selling long distance at 20-30 mil run rate signing people up on plans. Later they became big business in Financial services lead-gen.
o Their strong skill was online media buying and optimization – they rarely would do CPA deals – mostly buying CPM. He wanted to see all the data himself. As internet crashed media became cheaper so they bought more and their tracking and analysis became really good so they did better.
o CPM model gave him control over the information in the acquisition cycle so he focused on that.

– PR
o Huge on PR, “Be Everywhere” is his motto – fly to NY, proactively everywhere he could get press.
o Early on they hired 3 people from ACT software at once (more team hiring) on staff and supplement it with Agency (in LA worked with First Communications – good). To make PR big you need to find a way to “make news”. Mix it up with different agencies, people run out or creativity/contacts.
o Mark’s message: PR has to start at top of company, has to be consistent-ongoing (can change spending), build authentic relationships with journalists over time- respect them, (similar to raising capital – dots and lines, multiple meetings create patterns, dating…) tell people what you’re going to do and over deliver, people want to invest in people they trust. And if you make money for somebody they will trust you again,

– Fundraising
• It’s like building a relationship, under promise and over deliver. People want to invest in people they trust – once you’ve made money for someone you can always go back, and even get better pricing.
• Being pennywise and pound foolish not good especially in legal representation – spend the $$ if the person (not firm) is good.
• Going thru nuclear winter make you feel you really belong in the industry.
• Raising money is NOT the End Game: making money (profitable) and selling a business are the end game.

– His follow-on rounds & problems:
• Hit funding nuclear winter, impossible to get anyone to invest in follow on,
• The concept did not connect with VC’s. Once he got connected to CMO of Coca Cola which said to him “people do not want to lower their bills!!!” That was a quick meeting!! [[Point: don’t waste your time on people that don’t “get” what you are doing]] People were not returning his call, he would call people 50 times but no reply,
• Used to drive to work in pain in chest but could not let others know what is going on.
• They were low on $$ in the bank so bank called their loan in “MAC” Clause (Material Adverse Condition). Venture dept provider can not go below a certain cash level – not good to take these deals. Recently venture debt deal are throwing out the cash requirements but banking requirements. –
• They gave him 24 hours to deal with this, no longer dealing with the “nice guy” but rather their workout person who was unpleasant. Called Tim Spicer (c-companies partner) and he told him matt, they only want one thing, more warrant coverage!!! And he said ok got it. So he got a 30 day stay for more watrrant coverage.
• Mark: 10% warrant coverage is like stock options. Backstopping is when banks feel they are protected by VC’s investing in the company. Icing is the warrant for banks – stock they can buy in future but don’t have to buy so they make their $$ later in the future.
• Raised money from Splitrock Partners (of whom Matt thinks very highly) experience was so emotionally traumatic he came out of it vowing he’d never go thru that again – get cash flow positive RIGHT NOW!!!

[if you don’t have experience with venture debt you might want to listen to this bit in the video – we talked a lot about how it works]

– Lean startup:
o It’s situational so some businesses are operationally/people intensive, high LTV (lifetime value) means you can spend more upfront. Good when you’re testing and trying to learn the initial findings – is this a real business/good investor business, concept, replicable model but when you do let it go and GET BIG FAST.
• Mark’s view: too much money can eliminate discipline

– Selling LowerMyBills:
o In 2004 he was getting a lot of call to take more money but was not interested. He met with 8 companies and got 6 term sheets, decided to take General Atlantic deal and that’s when Experian came back to buy the whole thing. He told them it was now or never.
o On 1/11/05 his daughter was born at 8AM, at 6 PM email showing first million dollar rev day for the company and 8 PM term sheet from Experian to buy the company – all on the same day!
o Everything is for sale but it’s the price that moves the timing.
o Put a timeframe/money – competition in the picture
• Every acquisition includes something called a holdback which is money buyer will hold from the deal for later payment and contingent on meeting some set milestones, % is negotiable.

[if you don’t have experience with how it works when you sell your company, you might want to listen to this bit in the video – we talked a lot about how it works]

– On Entrepreneurship:

What makes a great entrepreneur? combination of factors –
• Visionary but also constantly looking to reconfirm hypothesis,
• Consummate evangelist of business,
• Little naïve on the chances – what we’re doing is more likely to NOT WORK Mark: “naïve optimism” don’t know it can’t be done and often looks for it, same thing has made USA what it is now.
• Good listener, take in information,
• Have pulse on what the market wants (hard to train that) cannot take this from customers only. His role in starting company is listening to all the moving pieces and connecting the dots that don’t seem to be connected.
• Mark: this is triangulation – ask 4-7 people and listen to them and get some synthesis from these feedbacks into what they believe is the answer.
• Persistence: keep trying to get attention; don’t stop if you want it bad. Do whatever it takes to get it done. Not taking no for an answer.
• Generally entrepreneurship is not about work-life balance: you need to love it, it has to be your life and you have to devote everything to it.
• Mark – surprised in how many people do not follow-up with investors / Matt: only 5% follow up
• Jason Nazar is the classic guy for follow up, persistent but respectful. (we both love Jason)
• Passion: Have to be able to motivate people, customers, team, yourself. Passion is infectious – people respond to it.
• Confidence is good, cockiness is not.
• If you need money to even hire a developer [means you cannot even excite one person to put in some sweat equity – not a good sign about your ability to motivate people.]
• Domain expertise, want someone that wants to do something big in a market they know, something really adjacent to what they were just doing, doing something 180 degrees opposite is extremely difficult

Finally:

The last bit of the video talks a lot about what Matt has invested in and what excites him.

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